Evaluating the Differential Impact of Regulation

The Situation

Following the investigations into contingent commissions paid to insurance brokers, regulators imposed restrictions on compensation forms, client disclosure, and compliance measures on the largest insurance intermediaries while other intermediaries were exempt. An insurance intermediary commissioned NERA to analyze the effects of the differential regulation on insurance intermediaries.

NERA's Role

NERA produced an analysis of competition among intermediaries under the existing regulatory structure. Using industry data and survey results, NERA confirmed that, despite the ban on contingent commissions at the largest insurance intermediaries, insurance companies continued to pay contingent commissions in similar levels after the investigations as they did before the investigations. Survey data confirmed that numerous insurance intermediaries continued to accept contingent compensation, many without buyer disclosure. The analysis also found that intermediaries with greater regulatory restrictions grew more slowly than those with lower regulatory restrictions. NERA’s resulting white paper demonstrated that the disparate regulation disadvantaged larger intermediaries, particularly in the market for medium-sized insurance buyers with no offsetting policy or efficiency benefit. The regulation affected insurance buyers and insurers in addition to large intermediaries by distorting competition among intermediaries.

The Result

NERA’s white paper was used to help illustrate and explain the differential impact of the existing regulatory regime in discussions with regulators that eventually resulted in regulations that were similar across all intermediaries.